Protecting Diversified, Direct-Market, and Value-Added Operations with Smart Business Structures, Written Agreements, and Regulatory Compliance

Final Report for LNC13-348

Project Type: Research and Education
Funds awarded in 2013: $158,660.00
Projected End Date: 12/31/2015
Region: North Central
State: Wisconsin
Project Coordinator:
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Project Information

Summary:

As a result of this project, we reached 2474 farmers with information about how the law affects their operation. We created 8 detailed, innovative, and comprehensive print resources that use color, graphics and farmer stories to make the law come alive. We hosted 7 workshops and 3 webinars, reaching over 1000 farmers. Most importantly, this project met it’s outcomes. Around 75% of our users learned a significant amount of new knowledge regarding farm business entities, farm financing, and drafting farm agreements/contracts. Amazingly, 90% of our users made a specific, identified change to their farm business within 3 months of accessing our resource. These changes included starting a new business entity, writing down or revising a business contract, creating a legal-compliance plan and other specific actions that reduce risk and create resiliency. Our project continues to yield dividends as fully 100% of survey respondents indicated they still plan to make additional changes. This project set a trajectory towards continued legal resiliency and stability. Farmers indicated they were more comfortable meeting with an attorney and discussing legal issues as a result of this work. We increased the knowledge of attorneys and set the stage for long-term attorney-farmer relationships. This project will continue to yield dividends for a long time, whether through continued distribution of the print resources and recorded webinars or as farmers continue to make changes and forge relationships with qualified, helpful attorneys. 

Introduction:

Farmers are far behind regular small business owners in using legal services. Research on Illinois family farmers shows that only 16% of survey respondents (with gross sales under $100,000) had ever met with an attorney. This small percentage was in spite of the fact that 68% of the same group felt they had needed the services of an attorney. (Endres, 2010) By contrast, 76% percent of small business owners in a nation-wide survey had used an attorney within the past three years alone. (NFIB, 2005). Farmers are not working with attorneys for three main reasons: 1) Attorneys do not understand the farm business, 2) Attorneys cannot help the farm business, and 3) Attorneys are too expensive. (Endres, 2010) These data are not necessarily surprising because as individuals who work in the sustainable agriculture community are aware, direct to consumer farmers prefer to learn from other farmers. (Newenhouse, 2009)  

Choosing not to work with an attorney makes farmers vulnerable if they aren’t otherwise informed of the legal aspects of their operation. Although a sole proprietorship is the traditional choice amongst farmers, other business options may offer  the same benefits but increased liability protection.  Unfortunately, many farmers have not yet made these structural changes.   Currently, 30-50% of sustainable farmers are organized as a sole proprietorship. (Woods 2009 and internal data) If any of these farmers incur a liability, personal assets are at risk to satisfy the judgment. Total liability exposure is even greater where separate farms organized as sole proprietorships create a partnership (for example, by distributing each other’s product or creating one CSA), thereby leaving each personally liable for the other’s business. Moreover, many farm businesses that have chosen an alternative business structure often do not fully understand the procedures in their operating agreement or bylaws are less protected from liability.

Sustainable farmers are experiencing tremendous growth as people enter farming, convert to selling locally, and expand operations. At the same time, farmers are becoming more creative about community-sourced funding and in creating collaborations for marketing and distribution. This is wonderful for communities and the environment, but growth and innovation not accompanied by sound legal infrastructure creates more to lose. This project is well timed because the sustainable farming community still has a chance to prevent legal issues from developing. Lawsuits and regulatory enforcement are not widespread; right now, we have the chance to create institutional knowledge amongst farmers and attorneys for the long term.

By addressing an essential need in the sustainable farming community and building the framework for a long-term solution to the lack of legal services for farmers, this program advances SARE’s objectives. To start, this program will improve quality of life for farmers. Investment in business entity documentation, such as a carefully written operating agreement or bylaws, establishes clear lines of authority and decision-making. Likewise, outlining an exit strategy before it’s needed means the transition is more likely to happen smoothly, with less business disruption. These things bring peace of mind. Simply being educated in legal aspects of a farm business and having access to an attorney can improve quality of life for farmers, even if no business practices change. There is substantial value in simply understanding when and how much risk one is accepting, as compared to not knowing.

This project will also improve farm profitability. Choosing the right business entity from the start can help a business run more efficiently. Clear authority and decision-making systems help a farm move quickly to take advantage of opportunity. Written contracts give a farm confidence in meeting obligations and expectations, and written agreements give the farm recourse if the other party breaches the contract. Environmental quality is also fostered by this project because our resources and services go beyond achieving strictly legal/economic goals. We help farmers understand how to incorporate their objectives for local food system development into the very structure of their business, their contracts, and their community-based funding strategies.

Over the long term, this project will continue to contribute to the stability and resiliency of sustainable farmers in the North Central Region. Our approach to legal curricula encourages farmers to discuss with other farmers their approach to running a business, raising funds through alternative means, and entering into contracts. As such, this project begins to create institutional knowledge within the farming community. We also begin to shift farmers’ attitudes to attorney counsel (55% of farmers attending previous workshops by the project team say they are more likely to seek the advice of an attorney after the event). By training attorneys to work with farmers, we increase farmer access to knowledgeable attorneys over the long term. Also, by collaborating with attorneys who also use our educational resources, we will create a network that will efficiently update and improve those resources. This project will be sustained after the initial project period through the permanent educational resources and networks established.

Without creating the legal backbone to support the innovative and profitable new farms in this area, our trajectory towards a more sustainable food system may not continue. It is essential that we address nascent vulnerabilities before they become problems. By developing high quality legal research materials based on farmer input, disseminating those resources in a collaborative environment back to farmers, and building a base of knowledgeable attorneys, we develop a permanent solution to a persistent, if still nascent, problem.

Project Objectives:

Below, please find a numbered list of short term and intermediate term outcomes as listed in the project application to SARE. Beneath each listed element is a description of whether and how we met the outcome

Short Term

  • Reach 2480 farmers
    • 2000 via 8 print resources
    • 480 through 8 workshops and 2 webinars

We reached a total of 2474 farmers through this project, just 3 shy of our goal. 1172 farmers accessed our print documents and 1302 farmers attended or watched our webinars and workshops. Recording our webinars and distributing them over the course of one year was a very successful strategy- we reached 421 individuals through our first business entities webinar and another 337 farmers through our farm financing webinar. These were our most popular events. Our workshops had more modest attendance because of the natural limitations of an in-person event. Our print resources garnered fewer numbers for one reason: We released them only a few months before the end of the grant term. Our exact number of print resources, workshops and webinars also changed. We produced 11 resources (7 of which were also distributed as a single larger one), hosted 7 workshops and 3 webinars. Although the numbers moved around a bit, we met our goals overall.

  • 1860 or 75% will improve knowledge of business entities, contracts, and financing strategies.

Averaging across all resources, 1905 individuals improved their knowledge of how the law affects their farm operation! We are excited to find that for our business entities materials, an average of 66% of users ranked their level of learning as a 4 or 5 on a scale of 1-5, with 5 being “a lot.” If we include those who ranked their level of learning as 3-5, 77% of users improved their knowledge. Learning levels were a bit lower for our financing strategies resources- about half of all users ranked their level of learning as as a 4 or 5 on a scale of 1-5, with 5 being “a lot.” If we include those who ranked their learning as a 3-5, 75% of users improved their knowledge.

  • 1860 or 75% will increase confidence in legal aspects

2326 users or 94% of farmers felt more confident in choosing a business entity, drafting a contract, and arranging a legally sound financing strategy.  100% of our respondents said they were more comfortable communicating with an attorney, accountant, or farm business owners after using our resources.  When it comes to legal education, understanding the terminology is half the battle so we are not surprised or suspicious of these high numbers.

  • 4 attorneys will increase knowledge

We worked with 7 regional attorneys to help develop their knowledge and experience in serving sustainable farmers. All increased their knowledge in sustainable farm law, particularly in the nuances of business entities for sustainable farmers.

  • 3 briefs developed for attorney community

We drafted and have available 7 specific briefs on more complex business entity selection issues for the attorney community.

Intermediate Term

  • 744 or 30% of farmers reached will make a change to a legal aspect.

We far exceeded this goal! 2227 or 90% of our users indicated they had already made a change to their farm business as a result of the resource within 3 months. Respondents indicated exactly which change they had already made, and the most popular change was forming a business entity and drafting an operating agreement, bylaws, or other organizational document for the business entity. Other farmers revised their current organizational documents, planned out a loan program, and planned other financing strategies.

Our program results indicate that farmers will continue to make important changes to their operation. 100% of respondents (across all platforms- online and in-person) planned to make a change in the near future to their farm business. These changes were specifically listed by each respondent and the most popular included changing a business entity and starting a new one. When asked about their current barriers to moving forward with that change, the majority said the issue was a lack of time.

  • 96 farmers will meet with an attorney

We did not end up asking this question in our evaluations. Based on our experience working directly with farmers and gaining a deeper understanding of their attitudes, perspective, and desires, meeting with an attorney was not necessarily the best next step. Rather, farmers needed more time to discuss issues with partners, plan for changes, and learn more information. Of note, 100% of farmers said they were more comfortable speaking with an attorney after using our resources. We know we moved our audience closer to this goal, if not close enough to answer this specific question. 

  • 4 attorneys will develop experience serving farmers

We worked with 7 regional attorneys to help develop their knowledge and experience in serving sustainable farmers. Because we realized the distance between farmers’ current position and actually meeting with an attorney was farther than we predicted, we are not able to draw a stronger connection. We know we increased comfortability meeting with attorneys and attorneys’ knowledge of sustainable farm law, and we expect the direct connections will grow naturally, going forward.

  • 3 farm educators will implement program materials into curricula

We are working closely with about a dozen farm educators to integrate project materials into their curricula. However, we are not able to say this work has concluded by the end of the grant term. Although our webinars were distributed half way through the grant term, we didn’t complete our print resources until much closer to the end. Right now, we are actively working with 12 organizations nationwide to integrate this material into their operations.

Long Term Outcomes are discussed in the Impact section

Cooperators

Click linked name(s) to expand
  • Edward Cox
  • Bryan Endres

Research

Materials and methods:

Create and Distribute Educational Materials

  1. Survey farmers on three legal subject areas: Completed in 2014
    1. Survey was successfully developed, distributed, and analyzed.
  2. Hold 2 focus groups: Completed in 2014
    1. We held a single focus group and did personal interviews to supplement, rather than host two groups.
  3. Research legal issues: Completed in 2015
    1. We finished all our research for this project by September of 2015. It was a massive undertaking, that resulted in really good product.
  4. Draft supplementary model contracts/agreements: Completed in 2015
    1. We completed a detailed, extensive “Farmers Guide to Business Entities” with the following chapters. Each chapter is being distributed separately as well:
      • Farmers’ Sole Proprietorships and Partnerships Guidebook
      • Farmers’ Nonprofit Guidebook
      • Farmers’ LLC Guidebook
      • Farmers Corporation Guidebook
      • Anti-Corporate Farming Law guide
      • Multi-farm Issues in Business Entities
    2. We completed a guidebook on financing through land contracts, including a model land contract, titled “Financing Farmland Through an Effective Land Contract: A Toolkit.”
    3. We completed a guidebook on using personal and community loans to finance a farm operation, titled, “Financing Your Farm Operation Through Personal Loans: Promissory Notes.”
    4. We also created and distributed two introductory resources early in the project to begin generating interest: 1) a comparison chart of the business entities available and 2) a checklist for creating an LLC. We have since replaced these initial materials with ones of much greater detail. They achieved our objective in generating early news and getting us contact information of the farmers interested in the subject.
  1. Engage a network of attorneys and farmers for review: Completed in 2015
    1. We have recruited several attorneys and farmers to serve as reviewers
  2. Revise materials based on reviewer feedback: Completed in 2016.
    1. We completed this milestone, although it may not have had the depth we originally envisioned. First, our materials were extensive and too long for any single person to review in their entirety. We had people review pieces, instead. Also, we did much of the review before we produced a final draft, as we realized we wouldn’t have enough time.
  3. Disseminate materials to farmer and educator audiences: Completed in 2016.
    1. By May of 2016, we had reached 2474 individuals with project materials.
  4. Create videos of farmers who have made changes: Completed in 2015.
    1. We created 3 videos of farmers in the Midwest who have made legal changes. (We were also able to leverage additional funds to create three additional videos of Northeast farmers also making legal changes.)
    2. We began outreach on the videos in November of 2015 and continue utilizing them in workshops, webinars, and general outreach into 2016.

Host workshops and webinars

  1. Schedule and coordinate logistics for 8 workshops and 1 webinar: Completed in 2015.
  2. Reserve facilities for workshops: Completed in 2015.
  3. Conduct outreach campaigns on workshops: Completed in 2016.
  4. Create interactive workshop/webinar curricula: Completed in 2015.
  5. Deliver workshops and webinars: Completed in 2016.
  6. Send post-event survey and revise as needed: Completed in 2016.
    1. We have surveyed all users and assessed increased knowledge and changed behavior. We didn’t receive feedback warranting a revision (based on the survey results).
  7. Disseminate curricula: Ongoing in 2016.
  8. Send follow up survey: Completed in 2016.
    1. All users of our print resources and webinars were sent a link to an online survey tool.

Deliver Legal Services

  1. Develop computer infrastructure for referrals and attorney collaboration: Completed in 2014.
    1. We have a basic system in place to manage this, however using it did not become especially relevant to this grant- see the Objectives section.
  2. Establish fee structure: Revised and completed in 2015
    1. Our approach in this area has evolved since writing this application. Rather than set out a “fee structure” that partners have to adhere to, we have focused on reducing costs overall through standardized forms. Our progress developing these forms is moving along nicely.
    2. In 2015, we continued on our approach to reduce costs by enabling farmers to complete as much of the work ahead of time as possible. We drafted checklists of questions farmers should answer about their legal document and desired outcomes before meeting with an attorney. We developed extensively annotated forms that enable farmers to modify a template for their unique situation. These checklists and forms are then taken to an attorney for an efficient review.
    3. This work was complete, but ended up holding less significance
  3. Recruit 4 attorneys: Completed in 2015
    1. We were able to recruit attorneys in Minnesota, Wisconsin and Illinois to refer farmers to, where we could not assist ourselves. Iowa remains outstanding and we likely will not be able to connect with an attorney for the purposes of this program in Iowa by the end of the grant term.

The delivery of legal services ended up holding less significance for the project overall, which is discussed in the other sections of this report. 

Research results and discussion:

For this section, this annual report focuses on a broader discussion of our results and milestones. Specific results and milestones for each year are discussed in the annual reports.

This project was very successful in achieving its ultimate goal: Create more legally resilient, sustainable farm businesses. Even beyond learning new things, the farmers we reached made specific, identifiable changes to their business in the near term- they wrote down verbal contracts, they formed more optimal business entities, they purchased insurance. These are the actions that matter in protecting sustainable farms.

We are proud of achieving this goal and can identify a few keys to that success. First, we were able to reach our target number of farmers because we started distributing resources early in the life of the project. These resources were modest- basic checklists and overview webinars. But, the early efforts allowed us to build the project slowly. Our final resources took a long time to complete, and we wouldn’t have been able to reach 2000+ farmers in just a few months if we hadn’t built up a user base. We also saw the recorded webinars as a real asset. Farmers continued (and still continue) to watch those as recorded webinars. Another key to success was the use of podcasts. We turned the webinars into podcasts. This means farmers could get our information while doing their work and during the summer season. Where high speed internet access is a barrier to joining a webinar or watching a recorded video, podcasts are often accessed over mobile devices not dependent on rural internet infrastructure.

The resources we produced have incredible depth. There are two sides to this coin, though. Depth means farmers can get real answers to complex situations. But, depth also means that the resource can be difficult to navigate and digest. We dealt with this problem by distributing our resource both in a whole (a 325 page exhaustive document) and in parts (individual resources on specific entity options). The problem is that we are distributing the same resources in two ways and that can be confusing. Striking a balance between depth and approachability is a persistent puzzle for legal education.

We used good design to deal with the approachability problem. We feel design is part of the reason we see such high rates of knowledge and behavior change. Colors, side bars, characters, and effective layout all contribute to that. We spent a significant amount of money on design services, but we think it was one of the “wins” of this project. It’s also very innovative and I think other projects could benefit from our experience with an investment in design.

We produced all our deliverables and met our outcomes (with the exception of farmers meeting with attorneys) but we still have several learning points to identify here. Our workshops were not as well attended as we would have liked. We also were not able to host as many as we would have liked. This happened for a few reasons. First, our Iowa partner went through a reduction in staffing and we chose to use a different partner. Our organization, Farm Commons, was in charge of Wisconsin recruitment, but we moved office locations to Minnesota and we chose not to develop our internal capacity to host workshops. Instead, we worked with partners in Minnesota and Wisconsin. Although these relationships were successful, they didn’t result in high numbers. In-person workshops have natural limitations of weather and distance. Good attendance at a workshop still means 25-30 individuals.

‘We modified our original goal of seeing farmers work directly with attorneys, for reasons discussed above. Farmers are further along than before the project, but still not to the point where a meeting with an attorney is relevant. Our project instead focused on developing thorough checklists – farmers are encouraged to fully complete the checklist (including achieving a level of consensus with family and business partners) before meeting with an attorney. Consensus can take years.

Research conclusions:

In this section we are discussing the Long Term Outcomes of the project, as identified in our project proposal. Short and Intermediate term outcomes are discussed in the Objectives and Performance Targets section.

The long term goals of this project were to build a long term solution to lack of legal services for farmers. We planned to achieve that in three ways: raise awareness and increase knowledge, shift attitudes, change legal risk management and behaviors, train attorneys, and make connections between farmers and attorneys. This project definitely succeeded in raising awareness, increasing knowledge, and changing attitudes, discussed above. We also had success in changing behaviors. For the long term though, we feel especially positive about those behavior changes. Again, 100% of our respondents indicated that they still planned to make additional changes to their business. We find similar results across legal areas, regions of the country, and projects so we trust these results. The reason farmers hadn’t yet made the changes was, for the most part, time. This shows exciting long term implications for this project. Combined with the depth of our resources, we feel confident farmers will continue to make legally-sound, risk reducing changes.

We launched a trajectory towards connecting farmers and attorneys that we trust will continue. Users increased their confidence in meeting with an attorney by huge margins. We also reached attorneys with our information. Although we did not reach many attorneys, we didn’t intend to go for numbers. Each state needs just 1-2 attorneys that specialize in sustainable farm issues. Our materials are designed to reduce the cost of legal services by increasing knowledge and preparation for both farmers and attorneys. We don’t necessarily have proof of that instance, but we believe it will be a long term result of the project.

Our goals included improving the quality of life through increased dialogue and improved relationships between farm families, partners, and attorneys. This goal is very visible in the way we wrote our project materials. Each focuses on the real experiences of farmers- partners disagree, families encounter disputes. For example, the most significant take-away from our video on farm partnerships was this: “We created a partnership agreement because we want to remain friends, no matter what happens with the business.” We feel this is incredibly important. Legal best practices aren’t necessarily that compelling to avoid a lawsuit- lawsuits are not common. Threats to the relationships between family and friends are both more visceral and more consequential. Rural communities can’t afford interpersonal problems. The long term result of easing interpersonal relationships through solid paperwork is the expected long-term result of which we are the proudest. The peace of mind from arranging expectations is a very positive quality of life outcome.

Economic Analysis

Our long term outcomes include results with an economic impact. We expect farmers will have more profitable businesses because the development of good paperwork fosters more reliable relationships and creates avenues for recourse. We absolutely see these results emerging. 35% of our survey respondents indicated they had already drafted a new organization document (partnership agreement, operating agreement or bylaws) as a result of our resource. The process of writing an organization document necessarily involves discussing what will happen if one partner dies, if a partner chooses to leave, if the business chooses to distribute profit, and other very essential business terms. Too often, farms do not make these decisions beforehand. When the decisions are forced by circumstance, the parties cannot make the most economically efficient decision, either because of time or interpersonal disagreement. Outlining procedure ahead of time resolves those problems.

Although we didn’t specifically gear this project to educate about insurance, it is a very relevant outcome. Many farmers hold misconceptions about what a business entity and an insurance policy do to protect the farm business. Our education emphasizes that insurance is the much stronger risk management approach, as compared to forming an LLC. From the feedback and comments, we know many farmers chose to buy a different or additional insurance policy as a result of our education. This is an action with significant economic effect. A farm with insurance is much more likely to bounce back from an unfortunate event than one that relied on a business entity alone.

Farmer Adoption

Although we listed these results above, it bears repeating in this section:

90% of our survey respondents had made a change to their farm operation as a result of our materials within 3 months of time! This may sound high and suggest inaccurate results. We have surveyed hundreds of farmers across the life of our programming and we consistently see change rates of around 80%. These results may be a little high, but I don’t fear they are inaccurate. In all honesty, these changes are easier to make than many others- it’s not like changing a production practice which can take a year or longer to implement. A farmer can form an LLC in 15 minutes.

 

QUOTES:

I learned a lot, I didn’t even know the distinction or benefits between sole proprietorships and LLCs. Feel like I have a much better base to decide the right path for our farm

I learned too many things to list them! Awesome workshop. It was straightforward and clear.

The LLC and “choosing a business entity” books were just fantastic! Clear, useful and to the point. I thought the examples were very on point and very helpful.

Amazing information. Lengthy, but yet relatively easy to hone in on the specific information that we are seeking. I really like that parts of the larger guide are available as individual documents. That made the information more accessible and manageable. Thank you for all your hard work!

Loved the resources! Have referred a couple times in a few short months to them!

Just thank you for working hard to make the important work of farming doable. You are a wonderful organization!

I love this resource! It is very clear and such a great tool. I have already recommended it to others.  Thank you!!

You didn’t ask me to review this one, but I read the guide to choosing insurance deeply and found it extremely helpful. Not only did it provide the information I was seeking, but it also gave me the confidence to talk to an agent and get what I needed. Thanks!

Really appreciate knowing about these resources and being able to direct farmers that I work with to them. It’s also really wonderful that they are free.

The stories you used as examples in the resources helped A LOT in making sense of the information. such an invaluable and comprehensive resource!

Participation Summary

Educational & Outreach Activities

Project Outcomes

Recommendations:

Areas needing additional study

Our business entities material emphasized limited liability companies and corporations making an S election because these are the most common and most useful farm business entities. We addressed nonprofit and cooperative entities, but we did not delve into the same detail. This is an area needing additional study. Many farmers are committed to using the nonprofit entity, no matter how inconvenient. Additionally, many farmers are considering forming cooperatives to meet innovative goals such as land access and land tenure. Our resources touched on the complications of so doing (anti-corporate farming laws) but did not consider some of the ways farmers might get around those restrictions. An additional study about overcoming those barriers is needed.

Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture or SARE.